A federal lawsuit claims State Street Bank & Trust Co. failed to sell General Motors Corp. stock before its price collapsed earlier this year, resulting in hundreds of millions of dollars of losses to GM's salaried and hourly employees' 401(k) plans.
The suit, filed by several participants in U.S. District Court in Detroit, seeks class-action status. It contends State Street, Boston, breached its duty as independent fiduciary for the two plans.
If successful, the suit could put greater pressure on independent fiduciaries and could drive up the fees they charge, according to consultants not involved in the case.
On Aug. 19, Judge Denise Page Hood denied State Street's request to move the case to Judge Nancy G. Edmunds in the same court. Ms. Edmunds had presided over a similar 2005 lawsuit on behalf of participants in the plans and had dismissed State Street from that case, said David R. Scott, attorney with the Colchester, Conn.-based law firm of Scott & Scott LLP, representing the plaintiffs.
State Street told Ms. Hood it would file a motion to dismiss the current case, Mr. Scott said. Ms. Hood scheduled a hearing for Dec. 16 on that motion.
If “the motion to dismiss is resolved in the plaintiffs' favor, discovery will proceed on the merits of the case and whether the case merits class-action treatment,” Mr. Scott said.
The $11.7 billion salaried employees' 401(k) plan and $8.6 billion GM hourly employees' 401(k) plan owned a combined $1.4 billion in GM stock as of Dec. 31, 2007, according to the latest available SEC filing.
“As the independent fiduciary and investment manager for the GM stock purchased by and held in the plans, State Street had a fiduciary duty to determine whether GM stock was a prudent investment to offer and hold in the plans,” according to the lawsuit, filed June 8.
“State Street continued to sit on the 50 million-plus shares of GM stock” held by the plans, the suit states.
Geoffrey M. Johnson, the lead plaintiff's attorney in the case in Scott & Scott's Cleveland Heights, Ohio, office, said the plaintiffs don't have all the data yet on the number of shares that were held in the plan.
“By waiting until March 31, 2009, to begin divesting the plans of their holdings in GM stock, and not divesting the plans of their holdings in GM stock at an earlier date, State Street breached its fiduciary duty of prudence and caused the plans to suffer hundreds of millions of dollars in losses” the suit said.
In November, State Street barred GM from allowing plan participants to purchase GM shares because of the automaker's financial difficulty (P&I Daily, Nov 26).
The plaintiffs seek restoration of the losses to the plan, which State Street is obligated to do under the Employee Retirement Income Security Act, the lawsuit states. The suit doesn't specify the losses.